Currently, a 40-year loan is offered to affordable housing buyers under a Bank Negara scheme announced in Budget 2019.

The source noted that the longer tenure complements the fund’s concessionary financing rate of up to 3.5 percent per year, which is “distinctly cheaper” compared to prevailing market rates.

However, the 40-loan tenure offered under the RM1 billion was only “a temporary measure, for a limited time and for a targeted segment”.

Lending and banking institutions capped the loan tenure for housing loans at 35 years in July 2013, as part of measures to curb excessive household debt as well as to reinforce responsible lending practices.

Before that, borrowers were offered housing loans with tenures of up to 45 years, with some even offering two-generational loans.

A source noted that the current 35-year tenure is more than enough and increasing the tenure would also lead to an increase in financing cost.

To illustrate, extending the tenure of a RM400,000 loan with a financing rate of 4.9 to 40 years would marginally reduce the monthly repayment by RM68, but would also raise financing by RM75,946 during that five-year extension period.

The monthly instalment for a 35-year loan would be RM1,993 versus RM1,902 for a 40-year loan, while the cost of financing would stand at RM437,191 for 35 years and RM513,137 for 40 years.

Aside from having higher financing, borrowers of longer tenure loans also build equity more slowly.

With this, the source hoped that the potential hike in the maximum tenure of housing loans would not become “an eventuality”.